IHTM42231 | The settlement: initial qualifying interest in possession of settlor or spouse

A special rule applies where the settlor or their spouse (or civil partner) had an immediate and qualifying interest in possession (QIIP) in the settled property and a later time the QIIP ends and the settled property becomes relevant property.

The rule (IHTA/S80) is that when neither of the persons above have a QIIP then for the purposes of relevant property charges

• any continuing settlement is a separate settlement that is deemed to commence at that later time and

• the settlor is the last of those persons to have a QIIP.

This rule may therefore alter the calculation of the rate of tax on future proportionate and anniversary charges.

That is because

• the historic value in the deemed settlement will be at the value at the later date

• the deemed settlor may have a different cumulative total at the later date and

• the deemed settlor may have a different domicile or long-term UK resident status, and this may affect the availability of excluded property (see below)

• if the deemed settlement commences on a death then other settlements made by the deceased, e.g. by will, may be related settlements or be treated as same-day additions.

However, the date of the anniversary charge is not affected. It is still determined by the 10-year cycle based on the first settlement.

Impact of the rule on excluded property

If the deemed settlor is not domiciled or is not treated as domiciled in the UK or is not a long-term UK resident at the later datethen the settled property may be excluded property.

However, when the special rule applies then an additional domicile or long-term UK resident test must also be satisfied and guidance on the test, which has changed over time, is at IHTM42603.